SEC lifts ban on hedge fund advertising

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WASHINGTON — For the first time, hedge funds will be allowed to advertise to the general public. The Securities and Exchange Commission voted 4 to 1 Wednesday to lift a ban on hedge funds, private equity firms, and other private investment managers marketing products to a wide audience.

Unchanged is that hedge funds can sell securities only to investors with a net worth of at least $1 million, excluding primary residence, or annual income of more than $200,000 (or $300,000 with a spouse) in each of the two most recent years. About 7.4 percent of US households have a net worth of $1 million or more.

Investor advocates worry that allowing hedge funds to advertise could lead to more fraud. It ‘‘will make fraud easier by allowing fraudsters to cast a wider net for victims,’’ said Commissioner Luis Aguilar, the only commissioner to dissent.

The SEC proposed to monitor the ads and collect data on how they affect the market.

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Lifting the ban will weaken investor protections, said Senator Carl Levin, Democrat of Michigan. The SEC rule ‘‘puts essentially no effective limitations on the types or forms of advertising that can be used to promote high-risk investments,’’ he said.

An association representing state regulators said it was disappointed the SEC acted before installing investor safeguards.

Barry Silbert, the CEO of SecondMarket, a private stock exchange, called the SEC’s action ‘‘an important step forward in bringing today’s regulations into the 21st century.’’